The Labour Market Effects of Payroll Taxes in a Middle-Income Country: Evidence from Colombia
We use a panel of manufacturing plants from Colombia to analyse how the rise in payroll tax rates over the 1980s and 1990s affected the labour market. Our estimates indicate that formal wages fall by between 1.4% and 2.3% as a result of a 10% rise in payroll taxes. This ‘less-than-full-shifting’ is likely to be the result of weak linkages between benefits and taxes and the presence of downward wage rigidities induced by a binding minimum wage in Colombia. Because the costs of taxation are only partly shifted from employers to employees, employment should also fall. Our results indicate that a 10% increase in payroll taxes lowered formal employment by between 4% and 5%. In addition, we find less shifting and larger disemployment effects for production than non-production workers. These results suggest that policies aimed at boosting the relative demand of low-skill workers by reducing social security taxes on those with low earnings may be effective in a country like Colombia, especially if tax cuts are targeted to indirect benefits.
|Date of creation:||Sep 2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kevin Lang, 2003.
"The Effect of the Payroll Tax on Earnings: A Test of Competing Models of Wage Determination,"
NBER Working Papers
9537, National Bureau of Economic Research, Inc.
- Kevin Lang, 2004. "The Effect of the Payroll Tax on Earnings: A Test of Competing Models of Wage Determination," Econometric Society 2004 North American Winter Meetings 360, Econometric Society.
- Bateman,Hazel & Kingston,Geoffrey & Piggott,John, 2001.
Cambridge University Press, number 9780521484718.
- Fajnzylber, Pablo & Maloney, William F., 2000.
"Labor demand andtrade reform in Latin America,"
Policy Research Working Paper Series
2491, The World Bank.
- Adriana Kugler, 1999.
"The Impact of Firing Costs on Turnover and Unemployment: Evidence from the Colombian Labour Market Reform,"
International Tax and Public Finance,
Springer, vol. 6(3), pages 389-410, August.
- Adriana D. Kugler, 1999. "The impact of firing costs on turnover and unemployment: Evidence from the Colombian labour market reform," Economics Working Papers 388, Department of Economics and Business, Universitat Pompeu Fabra.
- Vroman, Wayne, 1974. "Employer Payroll Tax Incidence: Empirical Tests with Cross-Country Data," Public Finance = Finances publiques, , vol. 29(2), pages 184-200.
- Robert J. Gordon, 1972. "Wage-Price Controls and the Shifting Phillips Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 3(2), pages 385-430.
- Nickell, Stephen & Layard, Richard, 1999.
"Labor market institutions and economic performance,"
Handbook of Labor Economics,
in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084
- Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
- Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
- Beach, Charles M & Balfour, Frederick S, 1983. "Estimated Payroll Tax Incidence and Aggregate Demand for Labour in the United Kingdom," Economica, London School of Economics and Political Science, vol. 50(197), pages 35-48, February.
- Joshua D. Angrist, 1995.
"Short-Run Demand for Palestinian Labor,"
95-16, Massachusetts Institute of Technology (MIT), Department of Economics.
- Adriana Kugler & Juan F. Jimeno & Virginia Hernanz, 2002.
"Employment consequences of restrictive permanent contracts: Evidence from Spanish labor market reforms,"
Economics Working Papers
651, Department of Economics and Business, Universitat Pompeu Fabra.
- Hernanz, Virginia & Jimeno, Juan F & Kugler, Adriana D., 2003. "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labour Market Reforms," CEPR Discussion Papers 3724, C.E.P.R. Discussion Papers.
- Kugler, Adriana & Jimeno, Juan F. & Hernanz, Virginia, 2002. "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labor Market Reforms," IZA Discussion Papers 657, Institute for the Study of Labor (IZA).
- Kugler, Maurice & Rosenthal, Howard, 2000.
"Checks and balances: an assessment of the institutional separation of political powers in Colombia,"
Discussion Paper Series In Economics And Econometrics
0018, Economics Division, School of Social Sciences, University of Southampton.
- Maurice Kugler & Howard Rosental, 2000. "Checks and balances: an assessment of the institutional separtion of political powers in Colombia," WORKING PAPERS SERIES. DOCUMENTOS DE TRABAJO 002117, FEDESARROLLO.
- Jonathan Gruber & Alan B. Krueger, 1991.
"The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance,"
in: Tax Policy and the Economy, Volume 5, pages 111-144
National Bureau of Economic Research, Inc.
- Jonathan Gruber & Alan Krueger, 1990. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensations Insurance," Working Papers 659, Princeton University, Department of Economics, Industrial Relations Section..
- Jonathan Gruber & Alan B. Krueger, 1990. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance," NBER Working Papers 3557, National Bureau of Economic Research, Inc.
- Gruber, Jonathan, 1997.
"The Incidence of Payroll Taxation: Evidence from Chile,"
Journal of Labor Economics,
University of Chicago Press, vol. 15(3), pages S72-101, July.
- Jonathan Gruber, 1995. "The Incidence of Payroll Taxation: Evidence from Chile," NBER Working Papers 5053, National Bureau of Economic Research, Inc.
- Holmlund, Bertil, 1983.
"Payroll Taxes and Wage Inflation: The Swedish Experiences,"
Working Paper Series
68, Research Institute of Industrial Economics.
- Holmlund, Bertil, 1983. " Payroll Taxes and Wage Inflation: The Swedish Experience," Scandinavian Journal of Economics, Wiley Blackwell, vol. 85(1), pages 1-15.
- Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
- Tullio, Giuseppe, 1987. "Long run implications of the increase in taxation and public debt for employment and economic growth in Europe," European Economic Review, Elsevier, vol. 31(3), pages 741-774, April.
- B Bell & Stephen Nickell, 1996.
"Would Cutting Payroll Taxes on the Unskilled Have a Significant Effect on Unemployment?,"
CEP Discussion Papers
dp0276, Centre for Economic Performance, LSE.
- Stephen Nickell & Brian Bell, 1996. "Would cutting payroll taxes on the unskilled have a significant effect on unemployment?," LSE Research Online Documents on Economics 20687, London School of Economics and Political Science, LSE Library.
- repec:fda:fdaddt:2003-14 is not listed on IDEAS
- Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-41, June.
- Andalón, Mabel & Pagés, Carmen, 2008. "Minimum Wages in Kenya," IZA Discussion Papers 3390, Institute for the Study of Labor (IZA).
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4046. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.